Borrowers are savvy when it comes to a remortgage and refinance

Many high value mortgage borrowers have enjoyed the low interest rate environment in the UK over the last few years.  The Bank of England Base rate has been at its record low of 0.5 per cent since March 2009 and some experts have suggested it may fall even further in the coming months.  And, economists are now in general agreement that it will be 2017 before interest rates start to rise.

This low rate environment has also had a knock-on effect on the views and decisions of millions of British mortgage borrowers.  The majority have shunned – and are continuing to ignore – increasingly competitive remortgage deals because they believe that low rates are the new norm. We look at why UK borrowers are failing to be tempted into a remortgage.

It would take a rate hike for borrowers to consider a remortgage and refinance

Recent research from Halifax revealed that the number of people remortgaging in the UK has fallen by 75 per cent since 2007.  Despite the average fixed rate mortgage having fallen from 5.98 per cent to 3.95 per cent during that time, most homeowners are electing to remain on their lender’s Standard Variable Rate (SVR).

Stephen Noakes, mortgage director at Halifax, said: “Over the last few months, SVRs have gone up and fixed rates have come down, but as our customer research shows, borrowers are only willing to consider remortgaging if it means their monthly payments become significantly cheaper.

“This attitude has fundamentally changed the demand for remortgaging in today’s market and points to the reason for remortgage levels being at historical lows.”

Hugh Wade-Jones, director of London mortgage broker, said: “After the Base rate hit 0.5 per cent back in 2009, it became increasingly apparent to many people that interest rates were set to remain low.  So, most people elected to stay on their SVR rather than go through the remortgage process. Rising arrangement fees on remortgage deals led people to question the point of remortgaging when they were already paying less than they ever had on their home loan.”

Research from Santander in August 2012 suggests that even if the Base rate were to rise, it would be unlikely to spark a huge demand for remortgaging.  The study found that just 10 per cent of borrowers would look to change deals if they saw an increase in their monthly payments between £25 and £50. And, for 13 per cent, their monthly payment would need to go up by £100 before they consider switching to a fixed deal.

Halifax says: ‘Although fixed rates are becoming cheaper, research suggests that the benefit of moving to a fixed deal needs to be greater for the majority of borrowers.’

Mr Wade-Jones, the London mortgage advisor, added: “Clearly the calculations are different for large mortgage clients where a small interest rate hike of 25 or 50 basis points would have a significant impact on their repayments.  We would expect many of our high net worth clients to speak to us if there were signs that the base rate was set to rise. However, it is clear that the remortgage market has substantially changed.  Now, it appears it would take a significant increase in rates for borrowers to even consider going through the remortgage process.”

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